A recent decision of the Alberta Court of Queen's Bench in
G-Star1 serves as a reminder of the importance
of clarity and consistency when inserting guarantee limits and
release conditions in letter loan agreements and guarantees.
In G-Star, the Court was asked to grant summary judgment
on a personal guarantee of corporate obligations. The
plaintiff, G-Star Canada Inc. ("G-Star
Canada") supplied clothing to a retail clothing
company operating as Underground Clothing
("Underground"), a company controlled by
the defendant, John Garrett Stiles
("Stiles"), pursuant to a maximum credit
facility of up to $450,000. Stiles gave a guarantee to G-Star
Canada for debts of Underground up to $250,000.
Underground made a proposal to its creditors under the
Bankruptcy and Insolvency Act.2 At
the time of the hearing of G-Star, the debt owed to G-Star
Canada by Underground exceeded $250,000. G-Star Canada
commenced a claim against Stiles for $250,000, the limit of the
The credit facility was provided pursuant to a letter agreement
between G-Star Canada and Underground. The guarantee was
given separately by Stiles. Both the letter agreement and the
guarantee referenced a "limit", and if the limit were
reduced, the guarantee was to be reduced proportionately; and
further that if the limit was reduced to a particular sum, the
guarantee would be released. However, problems arose because
the letter agreement and the guarantee contained conflicting
"limits" which, if reduced, would trigger the release of
The letter agreement defined the limit of the credit facility as
"a value up to CAD $200,000 (the "Limit"), plus the
value of the personal guarantee", and provided that "if
the Limit is reduced to $0.00, the Guarantee, in its entirety,
shall be deemed to be immediately released and
surrendered". The guarantee purported to adopt the
definition of "Limit" in the letter agreement, but
provided that "if the Limit is reduced to $200,000.00, this
Guarantee, in its entirety, shall be deemed to be immediately
released and surrendered".
The Court noted that the intent of the parties seemed clearly to
have been to provide up to $450,000 of inventory if the guarantee
of $250,000 was given. However, the circumstances under which
the guarantee was to be returned were unclear.
Ultimately, the Court found on the evidence that the Limit was
never reduced. Accordingly, there was no entitlement to any
reduction in the liability or to the return of the guarantee, and
G-Star Canada's application for summary judgment was
Although the Court's finding that the Limit had not been
reduced obviated the need to determine the impact of the
inconsistency between the loan agreement and the guarantee, the
Court suggested that if the Limit had been reduced, the Court
"might well have concluded that the entitlement to a reduction
in liability and eventual return of the guarantee was simply never
clear, and that the guarantee would stand without
reduction"3. The Court also noted that
Stiles' interpretation of the guarantee release mechanism was
not commercially reasonable, and would effectively render the
To avoid unnecessary litigation, lenders inserting guarantee
limits or release conditions into their letter loan agreements and
standard form guarantees should make sure the limit is expressed
consistently in both documents. It is also a good practice to
include a paramountcy clause identifying which document takes
precedence if there is a conflict between documents.
1 G-Star Canada Inc v John Garrett Stiles 2014
ABQB 33 [G-Star].
2 Bankruptcy and Insolvency Act (Canada) RSC
1985, c B-3, as amended.
3 G-Star at para 29.
4 G-Star at para 27.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.
From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.
Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).